Unsuccessful appeal by Trinity investors in respect of statutory demands issued by the Commissioner

Summary

This matter involved three appeals against High Court decisions dismissing the appellants' applications to set aside statutory demands issued by the Commissioner of Inland Revenue ("the Commissioner"). The Court of Appeal found that the Commissioner was able to issue statutory demands and dismissed the appeals.

Impact of decision

The Court of Appeal preferred the characterisation of the Commissioner as an officer of the Crown exercising certain functions on the Crown's behalf rather than as being part of the Crown. In any event the Commissioner is able to recover tax due to the Crown.

The Court of Appeal agreed with the view that the public has an interest in the end of litigation as the public purse sustains litigation to a large degree.

Facts

This appeal relates to the Trinity scheme that was confirmed as tax avoidance by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 ("Ben Nevis"). This appeal was one of a number of related matters heard by the Court of Appeal on 18 to 20 March 2014. This proceeding specifically relates to the Commissioner's attempts to enforce assessments confirmed by Ben Nevis by issuing statutory demands against the appellants in accordance with section 289 of the Companies Act 1993.

The appellants applied for the demands to be set aside under section 290 of the Companies Act 1993 on the basis that there is a substantial dispute whether or not the debt is owing (section 290(4)(a)) and the demand ought to be set aside on other grounds (section 290(4)(c)). All appellants relied on the on-going litigation to argue there was no final determination of their challenges to the Commissioner's assessments and so only a contingent not present debt owing. In addition, some of the appellants argued the Commissioner was not authorised to issue a statutory demand on behalf of the Crown, the Commissioner not being a creditor for the purposes of section 289.

These applications were heard as three separate proceedings in the High Court, each of which was dismissed by Associate Judge Faire (as he then was), who also awarded indemnity costs to the Commissioner in two of the matters.

The appellants appealed both the substantive decisions and the costs awards to the Court of Appeal.

Decision

The Court of Appeal found for the Commissioner on all grounds.

The Commissioner as creditor

The Court considered whether the Commissioner was part of the Crown and considered the better view is that the Commissioner, as an officer of the Crown, can exercise certain functions on the Crown's behalf and section 156 of the Tax Administration Act 1994 ("TAA") makes it clear this includes conducting litigation to recover tax.

The Court found that the source of the Commissioner's statutory powers to collect tax and issue a statutory demand came from section 6A read in conjunction with sections 156 and 176.

However, even if the Commissioner lacked the statutory power to issue a statutory demand in her own name, she could do so as an agent or officer of the Crown. In this case, the only defect in the demands issued was the omission of the words "on behalf of the Crown", but that omission was at worst a trivial defect, and the Court thought it not an omission at all.

Whether there was a substantial dispute

The Court dismissed the appellants' arguments that Part 8A challenges had not been finally determined. The Court considered that if the appellants' arguments were accepted, it would mean any defaulting taxpayer could defer payment of tax simply by commencing proceedings attacking the judgment in which his or her challenge failed.

Other grounds

The Court rejected all other reasons for setting aside the statutory demands. With regard to the appellants' claim that there was a public interest in the proceedings by virtue of the Commissioner's questionable motives - in this case to remove challenges to her assessments by liquidating the taxpayers - the Court said there was in fact a public interest in the finality of litigation. This also applied to the appellants' argument that setting aside the statutory demand was in the public interest because there was no other creditor.

In relation to a tangential point as to whether Goods and Services Tax credits could be offset against costs awarded by the High Court, the Court of Appeal agreed with the Commissioner that section 46(6) of the Goods and Services Tax Act 1985 did not provide for this.

Costs

The Court found the appeal points brought were hopeless from the outset and were motivated by an intention to delay the collection of tax. Accordingly, the Court awarded indemnity costs in the Commissioner's favour.